A Little Money Goes a Long Way: A Record 137 Million Microloans Issued to the World’s Poorest in 2010
"If you are talking about the...poorest segment, the question is, do they really see themselves in the long run? Do they have dreams? My experience most of them don’t. The only thing that concerns them is the day to day, how they will survive today and tomorrow." -- Gilbert Maramba, Negros Women of Tomorrow Foundation, Philippines
The world of microfinance, heralded as a major solution to poverty eradication when Bangladeshi economist Muhammad Yunus revolutionized microcredit with the founding of Grameen Bank in 1983 (he and his bank received a Nobel Peace Prize in 2006 for their efforts), has of late been dragged over the hot coals.
Operating in a non-transparent and often under- or non-regulated arena, microlenders in the world's poorest regions have been roundly criticized for usury, charging exorbitant interest rates (some in the neighborhood of 100 percent) and forcing several desperate borrowers to commit suicide, most notably in the poverty-stricken Indian state of Andhra Pradesh. In March, the central bank of Bangladesh ousted Yunus from his position as the head of the bank that he founded following accusations that he violated retirement laws.
A CHALLENGING YEAR...
"This has been a challenging year for microfinance," write Jan Maes and Larry Reed in their just-released report State of the Microcredit Summit Campaign Report 2012. "We have faced difficulties before: natural disasters wiping out the businesses of clients in Bangladesh and the Philippines, markets overheating in Morocco and Bosnia, and governments cracking down on microfinance institutions (MFIs) in Nicaragua or on microfinance clients in Zimbabwe. But, over the last year, we have been shaken as we watched rapid growth in a major market, India, turn into a major collapse in one portion of that market, Andhra Pradesh, which has brought real harm to clients we sought to help."
Maes, an independent microfinance and enterprise development consultant, specializes in knowledge management and learning related to sustainable livelihoods and inclusive markets for households living in extreme poverty. Larry Reed, former CEO of the Opportunity International Network, will assume the directorship of the Washington, DC-based non-profit Microcredit Summit Campaign in January.
...BUT A RECORD-BREAKING ONE, TOO
But Maes, Reed and othes in the microcredit sector also have reason to celebrate, as a milestone has been reached. According to their report, last year more than 137.5 million of the world's poorest families received a microloan. The number is record-breaking, and approaches the campaign’s stated goal "to ensure that 175 million of the world’s poorest families, especially women of those families, are receiving credits for self-employment and other financial and business services."
But the actual number of people who have been affected by the loans is much bigger: 687 million family members. That is a huge number -- more than twice the population of the United States, or to put it another way, more than half the population of China.
These numbers will certainly help to keep the mood upbeat at the Global Microcredit Summit 2011, which will be held next week in Valladolid, Spain, and which will feature some heavy-hitters from the world of microfinance, development and politics, such as Mr. Yunus; Sir Fazle Abed of the Bangladesh-based BRAC, the world's largest development organization; and the summit's honorary co-chairs, Her Majesty Queen Sofia of Spain and former Japanese prime minister Tsutomu Hata.
CLEANING UP THE TROUBLED WORLD OF SMALL LOANS
Hopefully, the summit attendees will get down to the business of cleaning up the microcredit sector. Some of the agenda topics look promising enough: over-indebtedness, client drop-outs, unethical collection practices, exoribant interest rates, mission drift, poor governance structures.
They would also do well to take a cue from the mistakes that have been made in the "regular" credit sector, most notably issuing loans to people who do not have the capacity to repay. Also, the establishment centralized databases will help lenders see what other loans have been taken out by potential clients and prevent people from accumulating multiple loans.
It will not be easy to introduce regulation, as many of the poor regions where microcredit is needed the most are run as fiefdoms, far away from central governments. The problems in Andhra Pradesh stand as one example. Indeed, just because a loan is small doesn't mean that it can't cause big problems.
image: Gloria Sadje with her two-month daughter at home in coastal Bugasong, Antique Province, the Philippines on March 25, 2009. Gloria has used microloans from Kiva partner Ahon Sa Hirap, Inc. to start a business selling fishing supplies such as line, weights, and material to make lures. She is using profits from her business to save for the education of her three daughters (credit: hodag, Flickr Creative Commons)